Arshad Shaikh looks at the recently released “The State of Inequality in India Report” by the Institute of Competitiveness, New Delhi, and tries to understand the reasons behind the growing income inequality in our country. This obstinate economic challenge must be addressed in a holistic manner; else its solution may become be a pipedream.

Inequality can be debilitating. It limits your journey towards upward mobility by constricting the available resources required to pursue your dreams and fulfil your legitimate aspirations. Inequality, which emanates from the imbalanced distribution of wealth, is one of the most disputed and contentious issues for governments and policymakers.

Does income inequality develop through the natural accumulation of private capital in the hands of a few and is it something that should be reversed through legislation and the intervention of the state? Will this interference in the free market economy to redistribute wealth do more harm than good? Alternatively, should we embrace economic growth that delivers millions out of poverty even if we have to pay the price of grotesque inequality? Any discussion on inequality should be backed by data.

As Thomas Piketty, the author of “Capital in the Twenty First Century” points out: “Intellectual and political debate about the distribution of wealth has long been based on an abundance of prejudice and a paucity of fact. Expert analysis will never put an end to the violent political conflict that inequality inevitably instigates. Social scientific research is and always will be tentative and imperfect. It does not claim to transform economics, sociology, and history into exact sciences. But by patiently searching for facts and patterns and calmly analysing the economic, social, and political mechanisms that might explain them, it can inform democratic debate and focus attention on the right questions. It can help to redefine the terms of debate, unmask certain preconceived or fraudulent notions, and subject all positions to constant critical scrutiny.”

The recently released “The State of Inequality in India Report” by the Institute of Competitiveness, New Delhi needs to be studied by checking the facts and figures it spells out as also its policy recommendations.

HIGHLIGHTS OF THE STATE OF INEQUALITY REPORT

The 104-page report was commissioned by the Economic Advisory Council to the Prime Minister (EAC-PM) headed by renowned economist Bibek Debroy and developed by Dr Amit Kapoor and Jessica Duggal of the Institute of Competitiveness.

In his preface to the report, Debroy honestly acknowledges: “There isn’t quite a conclusion. Instead, there is stock-taking of both inclusion and exclusion.”

The report looks at indicators such as income profile, the labour market, health, education and amenities that are available to households. These indicators can be viewed as the determinants of inequality and the associated data can be a useful step to understand the extent of work required for bridging the inequality gap.

Extracting data from the Periodic Labour Force Survey (PLFS 2019-20), the report says that in India, a monthly salary of minimum Rs 25,000 (Rs 3 lakhs annual) is among the top 10% of the total wages earned. The top 1% earns 6% to 7% of the total income and three times as much as the bottom 10%. The top 10% earns 30% to 35% of the total income. Among the regular salaried workers, nearly 36% workers earn a salary of less than Rs 10,000 a month.

Unemployment rates also paint a gloomy picture. Unemployment among the non-literate population is just 0.6% while it is around 20% for those with a degree/diploma. The unemployment rate in males is 5% and that for females is 4.2%. In the health sector, the report classifies the Sub Centres (SCs) as the first point of contact between primary healthcare and the community and the Primary Health Centres (PHCs) as the first contact point between the village and medical officer. The number of Health Sub Centres grew at a rate of just 6.4% from 146026 SCs in 2005 to 155404 SCs in 2019-20.

“The states of Uttar Pradesh (-780), West Bengal (-260), Andhra Pradesh (-428) and Jharkhand (-270) account for the highest difference rate in PHCs from 2005. Moreover, these states have recorded the highest percentage rate of shortfall of PHCs in 2020 as well. Uttar Pradesh has a 51% shortfall rate, and West Bengal has a 58%. With a 73% shortfall, Jharkhand has only 291 PHCs, while as many as 1091 are required pointing toward the extreme over-burden on the primary healthcare system in rural India. 85.9% of people from rural parts are not covered under any health scheme and 80% in urban cities.”

Coming to education, the report says that the literacy rate in India (for five years and above) is at 77%, with 71% of females and 84.1% of literate males. Only 80.16% of schools across India have a functional electricity connection. As for having functional computers in schools, only a meagre 38.5% have that facility while a mere 22.18% have internet availability.

Digital India is still in its infancy as far as the education sector goes. The nature of education imparted to girls and boys is skewed indicating continued gender discrimination. The overall enrolment numbers are also quite bleak. As per NFHS-5 (2019-21), the percentage of women who have completed at least ten or more years of schooling remains abysmally low at 41% (with rural regions recording a mere 33.7% of women with ten or more years of schooling. In contrast, men with ten or more years of schooling are recorded at 50.2% at all India level. A quintile is any of five equal groups into which a population can be divided according to the distribution of values of a particular variable.

Talking about wealth concentration in households, the report says: “There exists a huge gap in terms of household wealth between rural and urban spaces. A 44.4% wealth concentration in the highest quintile in urban areas is contrasted with a meagre 7.1% concentration in the highest quintile in rural India. Similarly, 28.4 % of households fall in the lowest quintile in the rural landscape, while only 3.1 of households in the urban regions. Notably, more than 50% of the households fall in the bottom two quintiles of wealth concentration (approx. 54.9%).”

NEED FOR A SINCERE APPROACH

The first challenge to tackling inequality in India is being sincere about it. With our current polity and political climate, it is difficult for the media or the opposition to pose serious questions over the entry of India into its “Amrit Kaal” with these numbers of “inequality”.

Already there is talk in the media that some officials at the EAC-PM have distanced themselves from the report and its contents, saying it is just a report commissioned by the EAC-PM and it does not mean that its recommendations have been endorsed by the government. In fact, it is quite possible that the report will not even be presented to those in the highest echelons of power.

The report comes out with populist recommendations such as enacting an urban employment guarantee scheme and moving towards the provision of a universal basic income (UBI) programme. It does not address some of the root causes of growing inequality. The fundamental question that must be debated and agreed upon is the level and methodology of taxing wealth and distributing among the poor and the needy.

Thomas Piketty has recommended a wealth tax at the rate of 1% on net worth between $1.3 million and $6.5 million and 2% on net worth above $6.5 million. Zakat is levied at the rate of 2.5% on wealth that has been in one’s possession for a lunar year. Isn’t it time to discuss these critical issues instead of the inconsequential emotive questions being deliberately propped to do vote-bank politics?

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